How The Recording Industry Killed Itself

Rolling Stone has published the first in a two part series that details the method the recording industry used to kill itself.

In the fall of 2003, the RIAA filed its first copyright-infringement lawsuits against file sharers. They’ve since sued more than 20,000 music fans. The RIAA maintains that the lawsuits are meant to spread the word that unauthorized downloading can have consequences. “It isn’t being done on a punitive basis,” says RIAA CEO Mitch Bainwol. But file-sharing isn’t going away — there was a 4.4 percent increase in the number of peer-to-peer users in 2006, with about a billion tracks downloaded illegally per month, according to research group BigChampagne.

Despite the industry’s woes, people are listening to at least as much music as ever. Consumers have bought more than 100 million iPods since their November 2001 introduction, and the touring business is thriving, earning a record $437 million last year. And according to research organization NPD Group, listenership to recorded music — whether from CDs, downloads, video games, satellite radio, terrestrial radio, online streams or other sources — has increased since 2002. The problem the business faces is how to turn that interest into money. “How is it that the people that make the product of music are going bankrupt, while the use of the product is skyrocketing?” asks the Firm’s Kwatinetz. “The model is wrong.”

Kwatinetz sees other, leaner kinds of companies — from management firms like his own, which now doubles as a record label, to outsiders such as Starbucks — stepping in. Paul McCartney recently abandoned his longtime relationship with EMI Records to sign with Starbucks’ fledgling Hear Music. Video-game giant Electronic Arts also started a label, exploiting the promotional value of its games, and the newly revived CBS Records will sell music featured in CBS TV shows.

Interesting stuff. The article concentrates on the moment the industry first screwed up….by not cutting a deal with Napster. How could they not have known people would just go somewhere else if Napster got shut down? .

“The record companies needed to jump off a cliff, and they couldn’t bring themselves to jump,” says Hilary Rosen, who was then CEO of the Recording Industry Association of America. “A lot of people say, ‘The labels were dinosaurs and idiots, and what was the matter with them?’ But they had retailers telling them, ‘You better not sell anything online cheaper than in a store,’ and they had artists saying, ‘Don’t screw up my Wal-Mart sales.’

Can’t wait to read the article, but I think the music industry killed themselves long before Napster stepped in.

During the mid-80s record labels cut mega deals with Springsteen and Madonna that justified them selling those artists CDs for $2 – $3 more. The flood gates opened and the price of CDs began to march upward regardless of the artist. Their profits were obscene as their costs and investment into the artists dropped. They got fat and happy and acted like it was their right to be so. They treated artists was like indentured servants (remember Prince writing ‘SLAVE’ on his face? TLC going broke? They experienced it first hand).

Napster was a reaction to the high price of music and they still haven’t caught on to that.

well, if the music industry was smart enough to get rid of/stop paying middle men that are completely unnecessary now-a-days (thanks to the internet), they’d still be able to make money on CDs, charging the same price, and expecting to sell less.

in a contract with a label, wouldn’t someone think it’s a little strange that CDs are still regarded as “new technologies”? labels are completely unnecessary if you know how to use a computer. But unfortunately, many musicians don’t.

frankly, i’m quite happy labels are making less. They need to focus less on the “single” and more on the whole CD. Thats why 60s and 70s musicians are so fricken great, because their whole product was good, not just a couple songs.

@dbeahn:
I think the MPAA will never be like the RIAA. Music artists can make a lot more money from touring than from Album sales. The movies business isn’t like that, they don’t have the touring option, and the movies need to sell. Plus movies cost a ton to make.

The RIAA model will go away for a leaner model that focus’s more on many distribution angles. I think artists will also sign less restrictive contracts, but the contracts will allow more rights for various formats. It amazes me still that there are some songs that are over 30 years old that aren’t on iTunes. I’m not talking about The Beatles either, they are a different case. Just standard stuff, and one hit wonders that should be there.

The recording industry seems to have decided to declare war on their customers. From aggressive lawsuits to the Sony rootkit fiasco, they seem to be doing everything possible to alienate the people who really care about music. They will always have the people buying an occasional discounted CD at Walmart. What they are losing is the core of their business. Idiots!

Thanks for the link, Consumetrist! I find the following bit the most telling:

In 2000, U.S. consumers bought 785.1 million albums; last year, they bought 588.2 million […] In 2000, the ten top-selling albums in the U.S. sold a combined 60 million copies; in 2006, the top ten sold just 25 million.

So while overall album sales went down 25%, top selling albums’ sales went down a whopping 59% in … of the music business at work!

Apparently these “intelligent” folks at the RIAA also can’t figure out that nobody wants to hear the same mainstream shit they keep pumping out. I can’t stand listening to the radio. It’s the same crap day after day. This is part of why I don’t buy CD’s. The other part is when I find a decent artist, I’m not going to pay $15 for an album with 2 good songs on it. I guess they have their heads too far up their asses to hear what the truth is. They’d just sooner throw out random lawsuits.

Parallels with how they destroyed radio (Clear Channel) and movie exhibition. Lax crowd controls, FREAKEN commercials after spending >$10 a ticket, ticket inflation, the crap they pretend is popcorn and “butter”, etc etc etc.

The movies will do fine, but going out to a theater? A sucker bet, and only because the theater chains strangled that golden goose.

The suicide of the industry started well before even that, I’d argue. It’s the result of business decisions made long, long ago about royalties, copyrights, promotion, and licensing, the accreted effects of which have made it impossible for it, as a whole, to act very quickly or intelligently about anything. And in retrospect, it was especially complacent about comprehending the ramifications of its turn towards the digital in all its manifestations (such as production, consumer products, and broadcasting), and that turn began over thirty years ago.

Oh, Consumerist: BOO! to linking to a printer-friendly format on Rolling Stone’s page. If you’re linking to someone else’s story and also relies on online advertising, you should link to their first page. Don’t steal click ads from the guys that wrote the article that you’re basing your posting on. It’s tacky. Show the same respect you’d like to get from ppl linking to your stories… They need to make money too. :)

Don’t forget that the just prior to the emergence of Napster, the industry tried to kill off the Single format, forcing consumers to always buy the entire, full-priced album.

This was paired with an evident emphasis on single-heavy albums and artists, marketed with a heavily-produced single, a heavily-promoted music video, and heavily choreographed and effects-laden performances.

In trying to kill off the single, the industry instead managed to kill off the album. Modern artists now license single songs to iTunes, for commercials and advertising, and even ringtones.

Worse still, financially the music industry was rather strongly disconnected from reality at the time of Napster. They were enjoying record profits, but these profits weren’t derived from market growth or new products, but because many consumers were repurchasing their entire music collections on the new CD format. (What was the joke from Men in Black? “This little thing is going to replace CDs in a few years… guess this means I’ll have to buy the White Album again…”)

The industry was so excited by the artificially strong CD sales that it tried to introduce multiple proprietary formats following the CD. Anyone remember the mini-CD? Digital Audio Tape? While those formats turned out to have some commercial uses, they were overall flops for the recording industry.

Napster didn’t spring into existence in a vacuum. The recording industry was pushing a business model of constantly changing formats, requiring endless repurchasing of already-purchased work, along with marketing single songs available only on overpriced albums, along with discontinuing older works, making them only available in higher-priced box sets. Napster was a direct response to these specific strategies. The most popular radio-singles turned out to be the most downloaded songs. One of the massive appeals of Napster was the catalogue of older, out-of-print, obscure singles; it was possible to find all kinds of older tracks beyond what was available on “greatest hits” albums.

It’s easy to say that Napster started hurting the record industry, but Napster, like all wonders of a capitalist economy, was a creation of existing forces.

The record labels only have themselves to blame for their demise. For years, the system of “screw the artist to maximize profits” worked: their goal was not only to sell records, but to also keep the artist in debt to the record company. Labels pay artists pennies on the dollar for each album, charge any promotion, production, marketing and video expenses to the artist, and loan exorbitant sums to burgeoning talent for cars, homes, clothes, jewelry and the like for loan shark rates. You can’t maintain that system when people aren’t buying the records.

I don’t feel bad for the artists, either. I’m actually doing them a favor but slighting the record company, because an artist makes more money touring than from album sales.

@trai_dep: Uh, I don’t watch commercials on my TV. I show up 15 minutes late to movies. And I personally thank TC for helping me skip as many ads as possible.

So, how long do you think it will be before the record labels take over the tours & ticketing, or the online music industry.

Granted, if they wanted to make more money, that’s what they would have done already. Suing your potential customers is not good business. The article says that over 20,000 have been sued. My guess in those people will boycott any RIAA products forever.

Even if they would have only bought 10 CDs in their lifetime, that’s still about $3 billion in lost revenue.

My advice to everyone is buy used CDs. You get what you want legally, and you’re not feeding the RIAA at all. Even iTunes feeds the beast. They never see a dime of a used CD.

Actually, these guys were on the road to crapsville 100 years ago when Thomas Edison first stuck a label on a phonograph forbidding you from using it to play media that was either not made by Edison OR not sold to you by an Edison rep.

The recording industry has always had a bizarre obsession with power and control over both the content producers and the content consumers. It was easy to enforce in 1907 – who had the equipment to copy/produce their own records?

It’s just taken this long to catch up with them and now it’s too late. Both the artists and the consumers can now participate without the label, but the label still wants to cling to the Victorian mentality of “Hey! I didn’t give you permission to play that song on your PMD…you bought it on a CD!”

@lincolnparadox: My advice to everyone is buy used CDs. You get what you want legally, and you’re not feeding the RIAA at all. Even iTunes feeds the beast. They never see a dime of a used CD.

Totally agree with you on this one.
I’ve also taken a shine to LaLa.com
Trade CDs with people for $2 each. I’ve traded 250 cds and explored music I would have taken the chance on at $22. Bite my ass RIAA.

It’s not just distribution issues that have killed the RIAA; it’s the fact that they have marketed absolute crap for the last ten years. Albums from Paris Hilton, Nickelback, and hordes of emo bands wouldn’t have been flying off the shelves even in the pre-iTunes, pre-Napster era.

Hopefully, Part 2 will address this. It’s shortsighted to blame all of the RIAA”s problems on distribution issues.

And didn’t itunes recently go drm free and see a huge jump in sales? people will buy if you stop stomping on their rights of fair use. that, and actually support good bands and stop making everyone sound alike.

@trai_dep:
It looks like Consumerist linked to the print friendly page because RS is one of those idiot websites that doesn’t have a single page view.
The Washington Post is the same way.
I don’t want to have to click through several pages to read something.
So I definitely don’t boo Consumerist, I cheer you!

On top of all that…why is Itunes trying to sell me music for the same price as a cd in a store (more or less)? 15 songs = 15 dollars. But you have no packaging and distribution overhead…so…let’s see, let you rape me anally, or I can just go get it for free?

The MPAA is on the same path, just that technology is a little behind on the video side, that’s all. Now independent actors (well, groups of actors anyways) and a single editor can make a video with limited effects. One extra guy will give you CGI and voila! A movie, (almost) as good as the pros. (Almost…) For now anyways. Later Actors will be able to do everything on a single PC, with a single garage, green screen, and internet connections for the scenery off of Google. I can already probably make a sort of greenscreen from a bedsheet, I mean come on.

Oh and by the way… I completely think that the 2009 discontinuation of analog TV is a scam. Meant to force users into an inferior for many product. Digital? Inferior? Well, think about it digital means all or nothing. Same goes for TV. You get a perfect reception, or you don’t get any at all. This will push Rabbit-Ear TV users into satellite and cable by eliminating free TV which is paid by ads. Even though Cable and Satellite have just as many ads, but cost a fortune!